Inflation expected to be under control

Friday, 2020-07-31 11:42:13
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Weak production and consumption levels are expected to contribute to low inflation this year.
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NDO - Despite the six-year high for the consumer price index in the first seven months, Vietnam is expected to be able to bring the inflation under control this year due to weak demand for production and consumption, in addition to decreased demand in the global markets.

According to the National Centre for Socio-Economic Information and Forecast (NCIF), though the seven-month consumer price index (CPI) ascended 4.07% year-on-year, the highest increase in the first seven months within the 2015-2020 period, the government may be able to rein in inflation at below 4% as planned by the National Assembly.

“The domestic economy’s production remains feeble, with enterprises finding it hard to revive production and business, meaning that demand for goods and services is still feeble,” an expert from the NCIF told Nhan Dan Online. “Over the past seven months, the number of enterprises leaving the market has still been big.”

The General Statistics Office has reported that in the first seven months of the year, the number of enterprises halting their operations hit 32,700, up 41.5% year-on-year, while 26,700 enterprises were not operating at their registered addresses, up 26.8% year-on-year.

Moreover, about 2.13 million passengers and 957.6 million tonnes of goods were transported, down 26.7 and 7.3% year-on-year, respectively.

For example, Singapore-invested Indo Trans Logistics Corporation has suffered from significant decline of 40% in its goods transportation.

“Demand for transportation has reduced dramatically,” said a representative from the company which has 200 tractor trailers and 110 trucks. “What’s more, demands for goods from global markets in general have strongly declined, driving the logistics market into big difficulties.”

In another case, Nguyen Huu Xuan, worker from Japanese-invested FSC Vietnam based in Hanoi’s Thang Long Industrial Park, told Nhan Dan Online that like hundreds of other employees at the company, he has resumed normal work since late May. “However, we are paid only 70% of the salary as the company has not fully recovered its operations and has been unable to boost exports to Japan and Europe,” Xuan said.

The company churns out automotive and motorcycles’ components locally consumed and exported to Japan, the EU, and the US. Since early this year, its revenue has declined by 40% year-on-year.

The Japan External Trade Organization in Vietnam has just released a fresh survey on nearly 2,000 Japanese firms in Vietnam about their performance in the country. The results showed that 65% of the respondents suffered from reduced revenue in the first six months and expect the reduction to continue from now till the year’s end. About 96% of the surveyed businesses said COVID-19 has affected them badly, and 90% said they have been hurt by limited immigration and flights into Vietnam.

According to the NCIF expert, since early this year, people have had to tighten their belt, meaning their demand for goods is weak. Furthermore, the tourism sector has also suffered from significant dents.

Specifically, the revenue from tourists is estimated to be VND11.1 trillion (US$482.6 million), down 55.4% from the same period last year.

Many localities, which are Vietnam’s key tourist destinations, suffered from slashed revenue, such as Khanh Hoa (76.4%), Ho Chi Minh City (74.9%), Ba Ria-Vung Tau (63.3%), Da Nang (58.6%), Can Tho (57.1%), Quang Ninh (50.5%), Quang Binh (48.6%), Hanoi (38.6%), Thanh Hoa (38.5%), Binh Dinh (38%), and Hai Phong (23.7%).

“Thus, given the escalating COVID-19 situation worldwide, and slack demand in the local market, it is expected that the inflation rate in Vietnam this year will be about 4%,” Anh stressed.

A number of international organisations have also forecast that inflation in Vietnam will remain below 4% this year.

For example, according to the World Bank’s latest Taking Stock report, titled “What will be the new normal for Vietnam? The economic impact of COVID-19”, the World Bank stated that most financial variables will remain under control in 2020, especially the inflation rate, which is expected to remain under 4% during the 2020–2022 period.

“The State Bank of Vietnam should adjust monetary expansion to the expected growth rate of the economy to contain potential pressure on domestic prices over time. Food and energy prices – two important items in the consumer price index – should not see large increases in the absence of disruption in their supply chains or deterioration in climatic conditions,” stated the report.

Global data analysts and provider FocusEconomics told VIR in a statement that month-on-month inflation increased from 2.4% in May to 3.39 in July due to a marked rebound in foodstuff prices. “Inflation should stay under-control going forward, amid continued mild oil prices and a stable currency. Our panelists project that inflation will average 3.0% in 2020, down 0.4 percentage points from last month’s forecast, and 3.1% in 2021.”

The International Monetary Fund recently projected that Vietnam’s inflation rate this year will increase 3.2% year-on-year.

While Vietnam’s economy has been seriously impacted by COVID-19, it remains resilient and is poised to bounce back, according to a new World Bank report.

Also according to the World Bank’s report, although the Vietnamese economy suffered from COVID-19 in the first half of 2020, prospects remain positive for both the short and medium term. If the world situation gradually improves, economic activity should rebound in the second semester of 2020 such that the economy will grow by around 2.8 percent for the entire year, and by 6.8 percent in 2021. With less favourable external conditions, the economy will expand by only 1.5% in 2020 and 4.5% in 2021.